The nonprofit sector is unlike any other business, it thrives on people donating their money without expecting a tangible product or service in return. What they do expect from a nonprofit is that they handle the money responsibly and that the money is used for its designated purpose.
Handling money responsibly is the key to making sure a nonprofit thrives and ensuring that the donated money is used for the purpose identified by the donor. How can nonprofits assure their donors they are handling their money responsibly? Through transparency.
Lack of nonprofit transparency can lead to abuse.
When a nonprofit lacks transparency, it’s easy for someone to abuse the funds and take advantage of donors and the organization. Stories about these abuses have unfortunately become all too common place in the media, and it has started to create donor distrust. However, if a nonprofit becomes more transparent and shares more information, that trust can be restored. Take for example the Douglas County, Kansas branch of Just Food. In August of 2015 it came to light that their, now former, executive director Justin Farmer had taken the nonprofit for quite a ride, including embezzling at least $52,000 and neglecting to pay at least $60,000 in payroll taxes.
Misuse of donations causes a public relations nightmare.
The news of Farmer’s misdeeds hit the press and immediately the nonprofit had a black-eye. Questions about board accountability arose, why hadn’t they kept a closer eye, what about all of the money that had been donated? It was a public relations nightmare. This sort of press could easily ruin a nonprofit if not handled properly. However, the board of Just Food was quick to react, instead of hiding from the press and the public, they spoke with them about their plan of action to make sure that the nonprofit could recover from the disaster.
Understanding nonprofit transparency and how it relates to fund accounting is the key to survival and preventing this from happening to your nonprofit.
Transparency and accountability can reverse the damage.
Their plan included hiring an accountant to check the books, making the board members personally responsible for the IRS bill, including using over $10,000 from their own pockets to pay for one of the installments, more accountability on board members, having specialists in nonprofit accounting to handle the books, and making sure they will be able to see what every single dollar raised is used for, and over their overall transparency.
Just Food looks like it will recover from the disaster that the board members and Farmer created; in September 2015 they held a fundraiser and with the community’s help had all $60,000 raised to pay back Uncle Sam. As to be expected there are still some that are upset at the food bank, but there’s no doubt that their new stance on nonprofit accountability and transparency has helped them to get on the road to recovery.
Nonprofit transparency builds trust and trust leads to more donations.
When a nonprofit faces a nightmare like Just Food did, it’s imperative that the board immediately take action to regain the public’s trust. When boards refuse to share information with donors or the public it raises red flags, people start to ask questions and wondering what, if anything, are they trying to hide. Even if a nonprofit has nothing to hide, not being transparent raises eye brows. However, when a nonprofit shares information it makes donors and the public feel like they can be trusted.
As a nonprofit, the burden to prove you can be trusted lies solely on you. You need to show donors that they can trust you with their hard earned money. As your transparency increases, so does your donor’s trust and so do your donations. Once trust is firmly established, it will be much easier for the you to reach your goals and fulfill your mission.
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